A surety is an individual who provides a guarantee for the performance or repayment of a debt or obligation owed by another party, known as the principal debtor, in the event that the principal debtor defaults. The Rights of Surety are safeguarded under the Nepal Contract Act, 2056 (2000). These provisions ensure that the surety is not subjected to undue hardship and possesses legal avenues for recourse should the principal debtor fail to meet their obligations. The rights afforded to a surety include the following:
Right of Subrogation
Upon settling the debt on behalf of the principal debtor, the surety gains the right of subrogation. This grants the surety the authority to assume the position of the creditor and seek recovery of the amount paid from the principal debtor. In essence, the surety is entitled to reclaim from the principal debtor any sums disbursed to the creditor.
Right to Indemnity
The surety is entitled to indemnification from the principal debtor for any payments made or losses suffered while fulfilling the obligation. Should the surety satisfy the creditor’s claim, the principal debtor is obligated to reimburse the surety for the amount disbursed. This right enables the surety to seek compensation from the debtor if they have fulfilled the debt obligation.
Right of Contribution
In situations where multiple sureties are involved for the same debt, if one surety pays more than their designated share, they possess the right to seek contribution from the other sureties. Each surety is responsible for a proportional share of the debt, allowing the surety who has overpaid to recover the excess from the others.
Right to Security
If the surety has been granted any form of security in relation to the guarantee of the debt, they are entitled to claim that security. The surety can utilize the security to recover the amount paid on behalf of the principal debtor in the event of default.
Right to Discharge
A surety may be released from their obligations if the principal debtor has satisfied the conditions of the agreement or if the creditor modifies the contract terms without the surety’s approval. For instance, if the creditor provides an extension for repayment without notifying the surety, the surety may be relieved of liability. These rights serve to safeguard the surety from unjust losses and ensure that they have means to recover payments or share the financial responsibilities when multiple sureties are involved.
In summary, the rights of surety are designed to provide equitable protection when guaranteeing another’s obligations. These rights of surety encompass the right of subrogation, indemnity, contribution, security, and discharge, enabling the surety to reclaim amounts paid, distribute the burden among co-sureties, and be exempted from liability under specific circumstances. Such protections are essential in mitigating the financial risks assumed by the surety in guaranteeing the obligations of the principal debtor.
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